Wednesday, March 25, 2015

Obstacles to industrialization

Geoffrey York, writing in The Globe and Mail offers another good picture of how things work (don't work?) in Nigeria.

Industrialization, in the standard version of economic development, is an important step. From the industrial revolution on, that step has involved difficult and often painful adjustments. The same will probably be true for Nigeria.

One note: York writes, "Nissan was the first major automaker to assemble vehicles in Africa’s most populous country…" In fact, Peugeot began assembling cars in Nigeria in the early 1970s. York writes from his office in South Africa. He might need to visit Nigeria more often. That fact does not contradict the facts he describes about Nissan's business in Nigeria (particularly the implied obstacles created by corruption).

Nissan was the first major automaker to assemble vehicles in Africa’s most populous country, and President Jonathan touted it as a key element in his “Industrial Revolution” policy. His dream was to diversify the oil-rich economy by creating thousands of manufacturing jobs.

But ten months later, the Japanese carmaker is unconvinced that the “revolution” is real. While its Nigerian plant has created 600 jobs by assembling hundreds of cars every month from imported components, it still faces huge obstacles: bad roads, congested ports, customs delays, severe electricity shortages and a competing “parallel” market of illicitly imported vehicles…

Jim Dando, general manager of Nissan’s Africa regional office said Nissan was fully aware of Nigeria’s chronic structural problems, so it launched its Nigerian operations last year by simply importing “semi knocked down” or dissassembled vehicles and then reassembling them at its Lagos plant. “This is baby steps,” he said.

While the carmaker hopes to move into more complex manufacturing in Nigeria eventually, this will take time. Nissan is still forced to rely on expensive diesel generators for much of its electricity in Lagos. And when its knocked-down cars arrive in container ships, it can take as long as three months to get them through the congested ports and heavily bureaucratic customs procedures, Mr. Dando said.

Last year, Nissan persuaded the Nigerian government to impose a heavy 70 per cent duty on imported cars, to protect the fledgling auto plants of Nissan and other newcomers, including Hyundai and Kia. But importers have found loopholes in the rules, creating a “parallel” market of luxury cars, usually from Dubai, which arrive at the port in nearby Benin. The cars are then brought into Nigeria as “used” cars – after having been driven for short distances in Dubai. In other cases, the importers simply bribe the customs officers to get the cars in.

At a Nigeria economic forum in Johannesburg on Wednesday, investors and analysts spoke of Nigeria’s enormous potential, but also cited its many vulnerabilities and weaknesses, including the government’s heavy reliance on oil revenue and its failure to push ahead with desperately needed infrastructure projects to improve its roads, ports, airports and electricity grid…

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